It’s good to be frugal by nature.  You will likely never get into financial trouble as a result.  You will always be able to appreciate things since you’re never buying the best and most expensive stuff.  Sometimes, however, it’s good to splurge.

You’ve already read “‘No Point Making Money If You Don’t Spend Your Money“, and I’m sure many of you agree.  We work so hard every day for our money, and to just hoard all of it in a bank account is such a crying shame.  There is no dearth of ways to make money, so we are actually much more afraid of running out of money than reality.

Time and time again, I see people who’ve been let go find jobs and security again.  I’ve seen people invest their life savings in a project, only to lose it all.  But, they are still alive and finding ways to live fulfilling lives again.

I get a sense we’re now too cautious with our money.  We’ve been permanently scarred by the multiple evaporations of wealth over the past 15 years that we’d rather not spend on some of the most important things that give us happiness and comfort.  Look at wealth indicators now vs. 2008.  It’s taken 3 years, but on average, we’ve all breached our 2007 highs and some of us, by a lot.  This is important since I can’t imagine us going through such a massive downturn like that again, at least for the next 10 years.  In the meantime, don’t be afraid to spend your money on things you cherish, like a $1,000 doggie stroller for your beloved Chow Chow named “Bear”!

THINGS TO  SPLURGE ON THAT WILL IMPROVE YOUR LIFE

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In the past, I used to go hunting for the best CD rates. Once a week I go yield hunting fo the best CD rates. I always like to have 5% – 10% of my investable assets in risk-free assets like CDs.

To get to your magical retirement number quicker, you can either save more or look for better returns. 

Currently 80% of my cash hoard is locked up in 5-7 year CD’s yielding on average 4%.  The “problem” I currently have is that every year I work, is another year’s worth of savings I have to figure out what to do with it.

Unfortunately, interest rates are way down now due to the global pandemic. Hunting for the best CD rates has becoming much harder. But it’s worth looking with ~10% of your investable assets.

The Best CD Rates Depend On Duration, Yield, And Duration

Up until last year, I always assumed 7 years was the longest duration offered because that’s all I saw.  Something changed this year where more and more financial institutions are offering 10 year yields.  So what happened?  Well, the markets happened and banks are being more opportunistic.

A bank’s main goal is to bring in deposits at the lowest rate possible and lend money out at a higher rate. This is called the “net interest margin.” 

As we have experienced during financial meltdowns, the stability of deposits is also important. No bank wants a bank run where suddenly every single customer wants their money back. If so, the bank goes under because they have to recall their loans.

With long term CDs, banks are able to obtain relatively more stable money.  As a yield hunter, I’m always going for the highest yield possible, generally at the longest duration possible. 

Because I work and save every year, it doesn’t matter if yields suddenly go up the very next year since I have a new chunk of change to plop down. You always want to employ the “DVD Method To CD Investing” by going after the longest duration possible to always get the maximum yield.

However, with the 10-year CD at only 3%, I’ve stopped to think whether this is a good idea or not.

Banks Are Generally Smart

By all historical standards, interest rates are low. Despite QE1, QE2 and massive monetary stimulus elsewhere, inflation is still relatively benign (so the government tells us). 

However, it is very logical to conclude that inflation, and therefore interest rates must go up based on a simple IS/LM chart and truism stating that every one dollar bill created leads to one dollar bill higher in prices.

As a result, banks are taking the view that if they can lock in 3% money for 10 years, they are in a winning position.  Banks are taking the view that perhaps in years 3-5, they might have to pay 5-7% interest for similar duration CDs, thereby increase their funding costs and decreasing their net interest margins. 

If a bank could offer 3% yields for 20 years, I’m sure they probably would, but nobody would probably buy them!

Related: CD Alternatives: Why I’m No Longer Investing In CDs

Death Comes To Us All

With a 10 year duration, I think about death. Will I be alive in 10 years to collect on my principal without penalty? Hope so. Will inflation be higher in 5-10 years?  Most likely yes.  Do I need the money during this time frame if I continue to work and save?  Most likely no.

What you need to do is think what the bank is thinking. With 10-year CD’s becoming more common place, it means that customers are demanding longer duration products because they don’t believe in inflation, and they are risk adverse. 

On the other hand, banks are probably thinking customers are lemmings and are anxiously offering these products to take advantage of customers by locking them in during low interest rate times.

Nobody has a crystal ball, and nobody is forcing anybody to do anything. However, it’s always good in any financial transaction to think how the other side is thinking.

Match Goals With Duration And

A lot of things come to mind whenever I look for the best CD rates. The good thing is that you are able to spend the interest received freely, without penalty.

My personal bogey is a 4% risk free rate of return. With the 10-year yield at only 1%, locking my money in a CD today is not the greatest.

Managing your cash is always very tricky because liquidity is still one of the most valuable assets to have.  You might find a beautiful investment property to take down or a promising company start up you want to help bootstrap. 

That takes liquidity earning minimal returns now. The good thing is that these tricky things you face are all good things. Things could be worse and you could have no cash to play with!

Instead Of Investing In CDs

In this low interest rate environment, I think it’s best to invest more in rental properties and commercial real estate opportunities. The value of income-producing property has gone way up. It now takes a lot more capital to generate the same amount of risk-adjust returns.

The best CD rates are too low to allocate very much capital.

Take a look at my two favorite real estate crowdfunding platforms:

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing.

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.

Both platforms are free to sign up and explore. 

I’ve personally invested $810,000 in real estate crowdfunding across 18 projects. I want to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000. 

Manage Your Finances In One Place 

The best way to become financially independent by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place.

Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts to manage my finances. Now, I can just log into Personal Capital to see how everything is doing in one place. I can also see how much I’m spending every month.

The best tool is their Portfolio Fee Analyzer which runs your investment portfolio through its software to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was paying! They also recently launched the best Retirement Planning Calculator around. It uses your real data to run thousands of algorithms to see what your probability is for retirement success. 

Once you register, simply click the Advisor Tolls and Investing tab on the top right and then click Retirement Planner. There’s no better free tool online to help you track your net worth, minimize investment expenses, and manage your wealth. Why gamble with your future?

About the Author: Sam began investing his own money ever since he opened an online brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing. He spent the next 13 years after college working at Goldman Sachs and Credit Suisse Group. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered.

To help you get to financial freedom, check out my top financial products page. The Best CD Rates is a FS original post.

I’ve come up with a great business idea in the worst sector in the world.  No sector has had more bankruptcies than the airlines industries.  That said, I’m undaunted because I know demand when I see it!

Introducing Samurai Airlines, where babies pay more and the person in the middle seat gets both armrests!

The inspiration for my new company comes from years of frustrated flying.  I somehow always win the lottery by getting the middle seat next to bathroom with a baby behind and two giants to my left and right.  Despite all my trips and “Premier Status” on a number of airlines, I’m still treated like donkey food.  As a result, I’d like to propose the following benefits of Samurai Air:

The Samurai Fund was my fun way of getting Financial Samurai readers involved in investing. Since inception in 2010, The Samurai Fund has crushed the S&P 500 in returns.

The secret to investing is to come up with a dollar-cost averaging system and keep investing for the long run!

If you invested $100,000 back in 2010 when I wrote this post, you’d have more than $300,000 today.

The Samurai Fund Update

Dear Shareholders,

We’re pleased to report that the The Samurai Fund (TSF) is up 8.5% year to date!  Unfortunately, the S&P 500 is up 9.9% thereby underperforming the broader markets by 140 basis points.  On the positive side, there has been 0 turnover in the fund since inception on January 1, 2010 which means no trading fees.  Furthermore, we have not had to hire employees to run the fund meaning that we are saving millions more a year in salary costs.

Our outlook for the stock market is rosy, thanks to Ben “Making It Rain” Bernanke and his desire to inflate all asset classes with QE2.  We believe in the American consumer’s ability to consume with greed again, and we are strategically positioned with names such as Samuel Adams (SAM, +76% YTD), Monster Worldwide (MWW, +14%), and Lenar Corp (LEN, +24% YTD).  Creating bubbles is a good thing, so long as we recognize we are in a bubble.  We at TSF hear you loud and clear Mr. Bernanke and will ride your donkey into the sunset!

Thank you shareholders for investing in The Samurai Fund.  We will try and make up for our underperformance by continually doing absolutely nothing.  Please revisit our investment philosophy.

Regards,

The Samurai Fund Investment Team

HIGHLIGHT POSTS FROM AROUND THE SPHERE

*Everyday Tips & Thoughts asks “What Would You do With A Letter From The President.”  There’s no way I’d ever sell it the letter for money, but I think Mr. Obama would be happy if you could profit from a letter he wrote if it can help a family’s finances. Just make a copy!

* Thousandaire produces a hilarious ROTH IRA music video called, “When I Retire”.  All Kevin needs to do is change the lyric “when I get paid” to “when I get laid” in relation to “I’ll have millions when I take it out” for it to go viral at the end!  Unfortunately, as old readers might recall, I’m quite against the ROTH IRA.  That said, better to have a ROTH IRA than no IRA!

* Roshawn writes a post which needles those who make over $250,000 in his article, “Good Old Middle Class Or Wealthy”. In many parts of the country raising a family on $250,000-$350,000 is not exactly wealthy due to the high cost of living, and the necessity to send kids to private school since the public schools are so appalling.  Can we agree that making $250,000 a year in Iowa goes farther than San Fran, Chicago, and Manhattan?

* Daniel’s brother made $1,200 out of thin air thanks to the World Series Giants in his post, “Selling A Product That Doesn’t Exist.”  Seriously, with just a little bit of ingenuity, people can make a lot of money!

* Don highlights the “Pros and Cons of Blogging” which many bloggers can relate too.  I’ll be coming up with a different spin on this one in a future post, so stay tuned!

* The Saved Quarter has a gritty guest post called, “The Face Of The Homeless.”  It’s important to give thanks to life and appreciate what we have, while help others.

* Special shout-out to BuildASign.com who created some awesome bumper stickers for Financial Samurai and Yakezie.com.  We’ll be distributing these neat bumper stickers out to Yakezie Scholarship winners as an added bonus!

FINANCIAL SAMURAI AROUND THE WEB

* On AMEX’s new site called GetCurrency.com, I share with readers how “I Barely Survived My Mortgage Refi.” I tell ya, it was a butt kicking, and I can see why it’s going to take a while for monetary easing to take effect.  A friend of mine, who has more cash in the bank than the mortgage he is trying to refi got denied for example!

* I’ve always wanted to write for Cosmopolitan Magazine, so here’s my attempt to do so with the article “Online Dating & Income Infatuation.”

* In “The Clock Builder vs. The Time Teller”, I discuss the efforts of building a sustainable organization.  Besides describing the difference between the two, I’m trying to stay out of the way.

To read more of the best personal finance sites on the web, come visit the Yakezie Network!

Cheers,

Sam

There’s a whole world out there of financial products I have very little understanding about. Apparently, there’s a market for buying and selling a structured settlement for cash after you win big money after a court case.  The following is a guest post by Jason from JG Wentworth which pays people cash now for settlements which are paid over time.

Overview Of Structured Settlement For Cash

When a plaintiff settles a court case and is awarded a large amount of money, it may be decided that the settlement will be paid over time in installments rather than a single lump sum payment.  This type of arrangement is called a “structured settlement”.

The advantage to having a structured settlement is that the money is tax-free if set up properly.  Structured settlements can also be beneficial because they provide a source of income for the recipient well into the future, where as lump sum payments will more likely be spent if the recipient does not manage their money responsibly.

Structured settlement payments can also be a disadvantage, trapping the recipient into periodic payments when they may want cash now.  Many settlement recipients choose to sell their settlement payments for a lump sum of cash to start a business, pay for college tuition, purchase a home or other various financial reasons.

Handling a large lump sum of cash can be exhilarating.  And it can be a little unsettling, too.  Money causes people to worry, and worry spins half-truths or unfounded myths about financial issues at hand. Selling your structured settlement into a lump-sum payment is an opportunity to increase your net worth — not limit it.  All it takes is a little guidance from a structured settlement buyer and a plan of action for your cash to breakthrough any doubts.

Apparently there must be some controversy about structured settlements and Jason is here to help clear the air.

MYTHS ABOUT SELLING A STRUCTURED SETTLEMENT FOR CASH

Here are the misconceptions about a structured settlement.

I have to cash out all of my settlement – NOT TRUE. An experienced structured settlement company is there to figure out your exact cash needs, be it a full payment, partial payment, or a shared payment. Your structured settlement is an important asset and is always managed as such – no matter how much or how little you use of its resources.

I cannot invest any of my structured settlement – NOT TRUE. A home is an investment.  Paying off your debts in order to free up more money for retirement savings is an investment.  Funding a child’s or even your own education is an investment.  Structured settlement cash is an opportunity to use both creativity and wisdom to establish a sound financial future.

This will affect my monthly budget – NOT TRUE. If you are using additional settlement cash to help pay the bills while using your time to earn a higher degree that pays a much higher income; or if you are using a large lump sum to purchase a profitable business; you are creating an opportunity to expand what you bring in each month in a positive way.

I’ll lose a lot of value if I liquidate my settlement – NOT TRUE. In fact, inflation will do the most damage on your structured settlement if you do not allow it to be distributed into one or more lump-sum payments for better-returning investments.  Take a settlement payout and place it in a dependable asset, like a piece of property or business, and watch the value of your cash increase.

It costs a lot to change my settlement to a lump sum – NOT TRUE. It costs far more to take a loan out with a high interest rate or to continue to stay in debt over credit card or medical bills.  A reputable structured settlement company is run a lot like your own finances – very carefully and with concern for a multitude of parties involved.  When you sell a portion of your settlement for cash, a host of financial professionals are able to navigate your financial needs to make sure you understand their number one priority is the exact same as yours: to establish a bright financial future.

Related: Ranking Debt Types From Worst To Best

MY THOUGHTS On Structured Settlement

Is it just me, or have you never heard of such a thing before?  Let’s say you are found guilty for setting on fire your neighbor’s prized Chow Chow puppy dog. The dog so happens to earn his owner $100,000 a year and was expected to live and earn for 3 more years.  The jury decides you’re going to have to pay the owner $300,000 out of your own pocket because you don’t have enough homeowners insurance or an umbrella policy.  Instead, you agree to pay 10 installments of $30,000 a year for the next 10 years.

Meanwhile, the owner of the Chow Chow is thinking he doesn’t want to wait 10 years to collect his $300,000.  He wants the lump sum now.  Unfortunately, you only make $80,000 a year and have $10,000 savings so the most you can pay him is $30,000 a year.  What to do?  I guess you call the guys over at JG Wentworth and see how much they’ll pay for your $300,000 settlement.  Perhaps you can get 80 cents on the dollar, or $240,000 upfront, perhaps not.  I guess it all depends on how desperate you are for the cash up front, and what kind of terms JG Wentworth or other structured settlement for cash firms are willing to give you.

Another scenario I can think of is if you are so lucky as to win the lottery.  Sometimes, you have the option of taking the big winnings in one lump sum.  However, often times, the state only pays you out over a set number of years.  In this case, you can ping a firm such as JG Wentworth to see if you can sell your future lottery winnings at a discount, since it’s all about the present value of money.  It’s important to have assumptions on inflation, investment performance, risk free interest and so forth.  At the end of the day, winning the lottery is a good problem to have!

If you are in need of a personal loan, I’d look at Credible instead. Rates are much lower than credit card interest rates. A structured settlement is a solution, but it seems more complicated than necessary.

Recommendation To Build Wealth

Manage Your Money In One Place:.Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. You can use Personal Capital to help monitor illegal use of your credit cards and other accounts with their tracking software. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.

After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.

About the Author: Sam began investing his own money ever since he opened a Charles Schwab brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at Goldman Sachs and Credit Suisse Group. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $150,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies, and writing online to help others achieve financial freedom.